Collective approach to buying a life cover

Mar 21 2014, 03:42 IST
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SummaryWhen we talk about life insurance, we generally talk about the products sold to individuals. The channel partners here are interested in selling insurance

When we talk about life insurance, we generally talk about the products sold to individuals. The channel partners here are interested in selling insurance by assessing the specific financial needs of the individual. The primary focus is on helping the individual reach his financial goals through a combination of various life insurance products. Group insurance is another way of buying life insurance, and at more favourable terms at times.

here, the insurer takes a whole group as the underwriting unit. The group can be an employer-employee group, a group of professionals such as doctors, lawyers or professors, or a group of people availing loan from micro-finance institutions. The insurer is not bothered about the health and habits of the individual members.

The insurer requires a group of at least 20 people, actively working on the day of joining the scheme. The members must have joined the group for purposes other than obtaining a low-cost group insurance. For employer-employee groups, an employee should not be on leave on medical grounds on the date of commencement of the scheme. In the beginning, at least 75% of the existing members must join the group, and the scheme must be made mandatory for all new members. So, the insurer expects to get a mix of lives whose average health condition is satisfactory.

There are some special advantages of group schemes. Insurable interest needn’t be proved by individual members here. Group insurance is ideal for those who don’t have much insurance individually because of advanced age, pre-existing diseases or adverse family history. As administrative expenses are quite low, group insurance premiums are also low.

The sum assured depends on the group’s size and nature. In most cases, a uniform cover is given to all members. Where various cadres of employees exist, graded covers are provided. Again, insurance cover can be a multiple of the annual salary. The premium payable by an employee can depend on his designation/basic pay. There is a ‘free cover limit’ in respect of every scheme — it is the sum assured up to which a cover can be granted without any medical requirement. For some employer-employee groups, the free cover can be as high as R50 lakh.

It is not just ‘insurance cover’ that is available under group insurance schemes. Most insurers have group savings-linked insurance schemes that offer a cover as well as savings opportunities. A portion of the premium is used to cover life

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